Cédric Durand in Sidecar:
The neo-Schumpeterian approach of Philippe Aghion – co-author of The Power of Creative Destruction (2021), among many other books – has had a significant influence on European economic policy since the turn of the century. Earlier this week, he was one of three economists to receive the Sveriges Riksbank Prize in memory of Alfred Nobel, the most prestigious award in the discipline, with the committee praising his account of how innovation provides the impetus for growth. What is the nature of this account, and what are its implications? It is perhaps an auspicious moment to reflect on Aghion’s thinking, as France undergoes a political crisis whose origins can be traced to the unpopular economic policies he championed as an adviser to President Macron.
The governing thesis of Aghion’s work, which draws inspiration from Schumpeter who in turn inherited the theme from Marx and Rosa Luxemberg, is that innovation is the engine of capitalism, and that the source of growth is creative destruction. ‘The new replaces the old’, as Aghion puts it. What has set him apart is his attempt to model and measure this phenomenon. According to his findings, this process has two key conditions. The first is flexibility. Markets should be liberalized so that innovations lead to an effective reorganization of the productive forces, resulting in increased economic activity. The second, however, is a limit on competition, too much of which inhibits innovators, who must be encouraged with low capital taxation and strong intellectual property rights. If this generates inequality, it’s a necessary evil. ‘I’ll take it’, Aghion says.
But he has a problem. There may have been growth in patents in recent decades – Aghion’s preferred indicator for measuring innovation – but economic growth as a whole is declining. And so he wonders: why is this acceleration in innovation not reflected in growth and productivity trends?
More here.
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